Week 7 Homework 22-23 Multiple choice (5 pts each) (highlight or


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Week 7 Homework 22-23 Multiple choice (5 pts each) (highlight or clearly mark your answer) 1) Which of the following is an example of the planning function of a budget? a. A budget demands integrated input from different business units and functions. b. Employees are motivated to achieve the goals set by the budget. c. Budget figures are used to evaluate the performance of managers. d. The budget outlines a specific course of action for the coming period. 2) Opportunity cost(s): a. of a resource with excess capacity is zero b. should be maximized by organizations c. are recorded as an expense in the accounting records d. are most important to financial accountants 3) Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from a supplier. Which of the following is relevant to this decision? a. the potential uses of the facilities that are currently used to manufacture the component b. the insurance on the manufacturing facility which will continue regardless of the decision c. allocated corporate fixed costs which would have to be allocated to other products if the component is no longer manufactured d. the cost of the equipment that is currently being used to manufacture the component 4) Which of following statements is true of short-term decision making? a. Fixed costs and variable costs must be analyzed separately. b. All costs behave in the same way. c. Unit manufacturing costs are variable costs. d. All costs involved in a decision are considered relevant. 5) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual selling price was higher than the expected price as per the static budget. This difference results in a(n): a. favorable flexible budget variance for sales revenues. b. favorable sales volume variance for sales revenues. c. unfavorable flexible budget variance for sales revenues. d. unfavorable sales volume variance for sales revenues. 6) When replacing an old asset with a new one, the original purchase price of the old asset represents: a. relevant cost. b. differential costs. c. opportunity cost. d. sunk cost. Problems (10 pts each) (please show your work for partial credit) 1) Polynesia Company manufactures sonars for fishing boats. Model 70 sells for $300. Polynesia produces and sells 5,500 of them per year. Cost data are as follows: Variable manufacturing $100 per unit Variable marketing $15 per unit Fixed manufacturing $280,000 per year Fixed marketing & admin $150,000 per year The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 40 units at a special price of $150 per unit. He says it will not cannibalize the company’s regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,500 to operating income. Based on the president’s criteria, what will Polynesia decide to do? (show the calculation to support this decision) 2) Doro Fill Company fabricates inexpensive automobiles for sale to 3rd world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows: Volume 800 units per month Variable cost per unit $7 per unit Fixed costs $15,000 per month A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $10 each. Assume that Doro Fill’s fixed costs are unavoidable, but the company could use the vacated production facilities to earn an additional $5,000 of profit per month. Calculate the total relevant costs for both the in-house and outsourcing options. 3) In your words, describe a Flexible Operating Budg…

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